1
ISSN: 1391 - 0531
Sunday, December 10, 2006
Vol. 41 - No 28
Financial Times  

Mega capital requirement for banks deadline put off

By Natasha Gunaratne

The Central Bank (CB) of Sri Lanka is postponing the implementation of the minimum capital requirement for banks which was due to be enforced from January 2007.

"We haven't declared anything but some banks are unable to infuse the capital by the end of 2006. The banks have been requesting more time," a senior Central Bank official said earlier on Friday evening. But later at night the Bank issued a statement saying it was postponing the deadline.

The official had said earlier no decision has been made so far in delaying the requirement which was raised to Rs.2.5 billion from 500 million and time given till December 2006 for banks to implement.

Smaller banks are struggling to meet those requirements. The Sunday Times FT learns that not only will the requirements be postponed but the 10% limitation on shareholders in banks will be strictly enforced, thereby affecting several banks. Currently, special permission has to be granted to shareholders from the Monetary Board for those who wishe to acquire more than 10%.

Union Bank is one that has been hoping to raise the additional capital and latest reports indicate that the proposed postponement would benefit the bank though it has put pressure on some stakeholders like Sampath Bank and others with a more than 10 percent share to consider offloading the excess stock.

Informed sources said that Central Bank Governor Nivard Cabraal summoned a meeting on Thursday with Union Bank directors at which Jit Warnakulasuriya, CEO Mahendra Fernando, Sampath Bank chairman Edgar Gunatunga and its Managing Director Anil Amarasuriya were present. Also included in the discussion were a Central Bank Deputy Governor and the Director of Bank Supervision.

Cabraal, is learnt to have said, that the minimum capital requirement would be postponed to 2009 as well as the strict enforcement of the 10% limit on shareholders, and said there were investors interested in a Union Bank stake.

Also present at this meeting was UNP parliamentarian Ravi Karunanayake, known to be interested in a majority stake in Union Bank. Karunanayake refused to comment when asked if he was present at the meeting with Cabraal but said he will be able to comment next week.

Ironically 11 UNP MPs led by Bandula Gunawardene are asking parliament to appoint a select committee to probe the appointment of Nivard Cabraal and the circumstances in which former Governor Sunil Mendis quit.

Meanwhile the Central Bank, in a late night press release, on the minimum capital requirement of banks said the Monetary Board has decided to give an extension on this provision.

In April, 2005, the Monetary Board increased the minimum capital requirement of licensed commercial banks from Rs.500 million to Rs. 2.5 billion and of licensed specialised banks from Rs. 200 million to Rs. 1.5 billion.

The existing banks were given time till December 2006 to meet 50% of the shortfall of the minimum capital requirement and the balance 50% by December 2007.

“Some banks which are in the process of infusion of capital through the issue of shares and retained earnings to meet the enhanced capital

requirement have made representations to the Central Bank requesting an extension of time in view of the difficulties confronted by them in meeting the new capital limits within the stipulated period of time,” the statement said, issued just a few hours after The Sunday Times made inquiries over the meeting between the governor and Union Bank directors.

The statement said the Monetary Board decided to grant an extension of time to such banks on-a-case-by-case basis to infuse 50% of the shortfall of capital by 2008 and the balance 50% by 2009, provided such banks submit a time-bound capital infusion plan committing to meet the minimum capital requirement by the new dates.

“However, new banks seeking licenses should adhere to the minimum capital requirement of Rs. 2.5 billion for a commercial banking license and Rs. 1.5 billion for a specialised banking license, as well as the other entry requirements stipulated by the Central Bank,” it said. (NG)

 
Top to the page


Copyright 2006 Wijeya Newspapers Ltd.Colombo. Sri Lanka.